dLocal Ltd Q3 FY2024 Earnings Call

Hello, and thank you for joining us. Welcome to the DLocal Third Quarter 2024 Results Conference Call. All participants are currently in listen-only mode. Following the presentation, there will be an opportunity for questions. I will now turn the call over to DLocal. You may begin.

Good afternoon, everyone, and thank you for joining the third quarter 2024 earnings call today. If you have not seen the earnings release, a copy is posted in the financial section of the Investor Relations website. On the call today, you have Pedro Arnt, Chief Executive Officer, Mark Ortiz, Chief Financial Officer, Maria Oldham, SVP of Corporate Development, Strategy, and Investor Relations, and Mirele Aragão, Head of Investor Relations. A slide presentation has been provided to accompany the prepared remarks. This event is being broadcast live via webcast, and both the webcast and the presentation may be accessed through dLocal's website at investor.dlocal.com. The recording will be available shortly after the event concludes. Before proceeding, let me mention that any forward-looking statements included in the presentation or mentioned in this conference call are based on the currently available information and dLocal's current assumptions, expectations, and projections about future events. Whilst the company believes that our assumptions, expectations, and projections are reasonable given the currently available information, you are cautioned not to place undue reliance on those forward-looking statements. Actual results may differ materially from those included in dLocal's presentation or discussed in this conference call for a variety of reasons, including those described in the forward-looking statements and risk factors section of dLocal's filing with the Securities and Exchange Commission, which are available on dLocal's Investor Relations website. I will now turn the conference over to dLocal. Thank you.

Thanks, everyone, for joining us today. Let me begin with a quick overview of our main highlights for the quarter. We're encouraged by how we see the business evolving. After an admittedly soft first quarter, we see ourselves consistently gaining momentum. Despite a tough 2023 comparison, driven by extraordinary gains in Argentina, we've once again returned to delivering a quarter of record results in both TPV and gross profit. Our margins, cash position, and cash conversion have all improved quarter-after-quarter throughout 2024. A year that started off weak has gained positive momentum. Let me go into greater detail now, starting off with our top-line results. We continue to deliver significant growth, with total payment volume re-accelerating to over 40% year-over-year, driven by our continued ability to expand our share of wallet of our existing global merchant base, as well as onboard new merchants. Both things underscoring our position as a trusted partner for global companies seeking to do business across emerging markets. Our performance this quarter was strong across diverse verticals, countries, and products. Notably, we ramped up operations in more countries, offered more payment methods, and gained share of wallet across important logos in the financial services, Software as a Service, on-demand delivery, advertising, ride-hailing, and commercial verticals. We increased payment volume in Argentina, Mexico, Egypt, and other parts of Latin America, mainly in Colombia and Peru, as well as in other regions of Africa and Asia, with very strong performance in South Africa. We reported record volume in our higher take-rate cross-border business, surpassing the $3 billion quarterly mark in cross-border flows for the first time ever. Our pipeline remains robust, including both growth opportunities with existing merchants, as well as new merchants. During the period, we successfully integrated major players, including MoneyGram, one of the largest global providers of money transfer and payment services, and other significant remittance companies to serve them across Latin America, Africa, and Asia. We also continued to ramp up volumes with one of the main Asian commerce players, expanding the regions in which we serve them, and have now gone live in Brazil with one of the largest global fintech companies, also out of Asia. Moving on to profitability, this quarter's results showcase the resilience of our business model. We reached record gross profit of $78 million, with net take rates stable at 1.2% since Q1 2024. This is a consequence of our differentiated value proposition, continuous pursuit of cost efficiencies, such as renegotiating with processors, and the real value in solving complexities across emerging markets for our global merchants, which grants us pricing power and differentiates us from more commoditized payments offerings that we see in the developed world. We achieved those results despite weaknesses in most emerging market currencies. From a currency perspective, applying constant currency growth rates across our main markets, Brazil, Mexico, Argentina, Egypt, and Nigeria, our gross profit would have been approximately 6% higher during the third quarter 2024, or over 18% quarter-on-quarter, and TPV growth would have been 14% quarter-over-quarter. Our adjusted EBITDA reached $52 million, despite continued investments in our engineering team, back office capabilities, and our license portfolio, all crucial for our long-term success. Although adjusted EBITDA was down year-over-year, this represents the second consecutive quarter of increased operational leverage with adjusted EBITDA over gross profit margin now at 67%. This demonstrates the operational leverage inherent in our business model, our general philosophy of expense control, and disciplined investment to deliver our long-term growth ambitions. Cash generation, another strength in our financial model, was also solid. During the past three months, we had net cash from operating activities, excluding merchant funds, minus CapEx, amounting to $26 million, a cash conversion of practically 100% to net income. I'd now like to cover some technology and product development deployments during the quarter that shed further light on what our core offering is and how we differentiate from competitors. Some context, always remember that the backdrop of where we operate is an emerging market landscape where payments are still characterized by three main factors. They're fragmented, they're costly, and they have lower performance. During the quarter, we launched our Smart Requests functionality, boosting our transaction performance and therefore improving conversion rates by an average of 1.22 percentage points across the board. It may sound minor, but it isn't. It actually represents, in practical terms, 1.2% additional revenue to our merchants. Smart Requests rely on per-country machine learning models that optimize routing and chaining so as to maximize authorization rates for our merchants. We've also continued to develop increasingly advanced real-time cost calculation models to optimize processing costs, which also contributed to our gross profit achievement and stable net take rate. A third area of innovation has been our launch of new and promising alternative payment methods. As part of our ongoing efforts to deepen our infrastructure in various countries and add more value to our merchants, we've successfully deployed integrations with Nupay in Brazil for global merchants. This represents an expansion of our payment method footprint with this widely adopted and advanced feature set, APM. Finally, we launched a new product to our suite of offerings, a standalone payment orchestration option, which allows merchants to retain our smart routing, fraud detection, and unified reporting while obtaining their own licenses and contracting directly with processors in each market. Although this model may result in a lower take rate net of acquiring costs, it enhances our ability to capture share of wallet with relevant clients and continues to add value to merchants through our single API connection and product functionalities, while delivering optimized conversion and cost results. All of these improvements to the platform, as well as the development of new solutions, serve to deepen our competitive advantages throughout the markets we operate in, enhance the stickiness of our products, and potentially bring future revenue streams. Lastly, we continue to invest in expanding our license portfolio, obtaining an International Money Transfer Operators License in Nigeria, Financial System Auxiliary Services License in Ecuador, and a Payment Service Provider and Payment System Operator License in Uganda. We still see this growing portfolio across complex and volatile emerging markets as very valuable intellectual property and adding to it every quarter is a deepening of our competitive advantages. Wrapping up, we're delivering on the outlined plan for sequential performance after Q1. Consistently hitting record TPV, holding the line on take rate declines, showing the best gross profit ever for a quarter, and improving our margins through reduced absolute dollar OpEx. In short, things are trending in the right direction. With that, I'll hand it over to Maria to take you through a more detailed overview of our third quarter results, and then to Mark to walk us through key financials.

Thank you, Pedro. Good afternoon, everyone. As Pedro mentioned, despite some softness in Brazil, our third quarter results show healthy growth and momentum. We achieved TPV of $6.5 billion, up 41% year-over-year, and 8% quarter-over-quarter. From a business line perspective, our cross-border flows grew 12% quarter-over-quarter, and 35% year-over-year, reaching $3 billion in TPV, mainly driven by commerce, financial services, on-demand delivery, and SaaS verticals. Our local-to-local TPV increased by 4% quarter-over-quarter, and 47% year-over-year, with strong performance in Mexico and Argentina. We experienced a sequential slowdown in growth in Brazil, driven by a loss of share of wallet and credit card payments with a top commerce merchant, as they were granted a payment license and were required to connect directly with acquirers in order to remain compliant. On a positive note, we see potential to reignite growth with that specific merchant through a pipeline that includes alternative payment methods and onboarding them to our new standalone payment orchestration option that Pedro described earlier. Excluding the impact of this merchant, TPV in Brazil would have been up 8% quarter-over-quarter, driven by advertising and commerce verticals. Our pay-ins business grew 8% quarter-over-quarter, and 35% year-over-year, with strong performance in Mexico, Colombia, Argentina, South Africa, and Egypt across various verticals. Our payouts business grew 7% quarter-over-quarter, and nearly 60% year-over-year, driven by financial services and remittances. Moving to revenue, we achieved $186 million in Q3, representing a 13% year-over-year growth. This is mainly driven by Egypt, with volume growing over 90% year-over-year, Mexico, with positive performance in commerce and financial services, and other markets, particularly Colombia and South Africa, with strong growth across commerce and the ride-hailing verticals. These positive results compensated for the lower revenue in Nigeria, due to the Naira devaluation in February 2024, and in Brazil, as previously discussed. On a quarter-over-quarter basis, revenue followed the TPV trend, growing 8%, driven by the performance in Argentina and Egypt, with volumes increasing by over 30% in the period, as well as the positive results in other LATAM and other regions in Africa and Asia. Now, moving to gross profit dynamics. During the quarter, gross profit reached a record of $78 million, up 5% year-over-year, despite the hard comparison with Q3 2023. Starting with LATAM, gross profit was $56 million, down 6% year-over-year, driven by Argentina, due to the lower FX spreads following the currency devaluation in December 2023, and Brazil, given the repricing for our largest merchant, which occurred in Q1 2024, and share losses in credit card payments. This was partially offset by Mexico, where gross profit grew over 60% year-over-year, due to the volume growth and lower processing costs from renegotiation with processors in Q1 2024. In Africa and Asia, gross profit was also stellar, with almost 50% growth year-over-year, mainly driven by our overall TPV growth in Egypt, as discussed previously, and TPV ramp-up of our commerce merchant, combined with cost optimization in South Africa. On a quarter-over-quarter basis, gross profit increased by 12%. In LATAM, gross profit increased by 4% quarter-over-quarter, driven by Mexico and other LATAM markets, where we experienced $2 million growth from widening FX spreads that may eventually fade away in case of currency devaluation. These positive factors were partially offset by Brazil, given the share losses on credit card payments from a top merchant, and Argentina, where we had higher expatriation costs. In Africa and Asia, gross profit increased by 39% quarter-over-quarter, due to the same factors just discussed in the year-over-year comparison. As you can see by these results, Q3 continued to build on the growth of Q2 and delivered record gross profit despite the softness in Brazil, demonstrating increased diversification on a geographic and merchant basis. As we continue to scale our business, we expect to reduce volatility on our top and bottom line. In addition, please note that we provide detailed country-by-country information to help you better understand the drivers of our results. That said, it is important to emphasize that our business is ultimately driven by the volume of our merchants' needs to us and the unique dynamics of each of the markets. We encourage you to view our performance holistically, as this perspective best reflects the quality and resilience of our business as a whole. Let me now hand it over to Mark to continue discussing our financials.

Thank you, Maria. Hi, everyone. As discussed in previous quarters, we continue to invest in our capabilities and innovations to drive efficiencies across various areas of our business. We have maintained investments in key areas critical to our future growth while balancing out other expenditures given our top-line path. With this, for Q3, our total operating expenses reached $37 million, a 6% decrease quarter-over-quarter and a 61% increase year-over-year. Most of the OpEx growth continues to be mainly allocated to product development and IT capabilities, with these expenses increasing by 88% year-over-year, while combined sales and marketing and G&A expenses grew by 35%. Pedro highlighted in his opening remarks some of the projects our tech and product teams have been working on during the past few months. We expect this allocation tilt toward product and IT to continue in the future. The 6% decrease quarter-over-quarter reflects our continued disciplined approach to expense management after a weaker-than-expected result in the first semester. Through reignited growth and cost management, we delivered an operating profit of $41 million for the quarter, up 36% quarter-over-quarter and an adjusted EBITDA of $52 million, up 23% quarter-over-quarter, representing an adjusted EBITDA margin of 28%. This marks the second consecutive quarter of increasing adjusted EBITDA and adjusted EBITDA margin. The ratio of adjusted EBITDA to gross profit followed a similar trend, reaching 67% for the quarter, up 6 percentage points quarter-over-quarter. Turning now to net income, net income was $27 million for the quarter, down 42% quarter-over-quarter and 34% year-over-year. The earnings presentation provides a detail of the quarter-over-quarter evolution of net income, which was mostly impacted by lower finance results. More specifically, the positive $23 million non-cash mark-to-market effect related to the Argentine bond investments in Q2 '24, as mentioned last quarter, and higher finance costs this quarter, mainly driven by exchange differences and higher cost of hedges. Adjusted net income, which excludes the impact of the Argentine bonds and intercompany loan, was $43 million for the quarter, down 5% quarter-over-quarter. Our effective income tax rate decreased to 8% from 18% last quarter, primarily driven by lower pre-tax income in Argentina. On a year-to-date basis, our effective tax rate stands at 18%. Moving on to cash flow for the quarter, net cash from operating activities, excluding merchant funds, less CapEx, amounted to $26 million, up from $19 million in Q2 '24, representing a 37% increase. With that, we continue to hold a strong liquidity position of $320 million, including $208 million of available cash for general corporate purposes and $112 million of short-term investments, even after the $100 million share buyback executed this year. With this, let me hand it over back to Pedro for closing remarks.

Thanks, Mark. Before we conclude our presentation, I'd like to state that our guidance remains unchanged in light of our Q3 2024 results and what we've seen through Q4. However, it's important to reinforce that Q4 results are heavily weighted towards the next three to four weeks, given the expected seasonal lift in commerce volumes and Black Friday. Now, let me wrap up our earnings call by emphasizing our long-term optimism, driven by the strength and resilience of our business model. dLocal is a young and dynamic company, less than eight years old, and yet, during this period, it's delivered extraordinary growth. We've expanded our roster of sophisticated enterprise merchants, increased our share of wallet with them, and built operations across the most relevant emerging markets globally, adding products, new alternative payment methods, and licenses over these years. This growth underscores our success in serving and supporting these most demanding digital merchants with tailored solutions that meet their evolving needs. We navigate the highly complex and changing payment landscape and regulatory environments across emerging markets, with one of the most complete emerging market processing ecosystems. Our best-in-class orchestration layer, competitive Forex liquidity and rates, robust fallback and redundancy features, efficient prevention engines, and KYC regulatory and compliance layers are built to suit each market we serve. The comprehensiveness of our One dLocal solution allows our merchants to add new markets and payment methods at a marginal incremental implementation cost, providing cost-effective and speedy geographic go-to-market strategies. This value supports the resilience of our business, despite operating in the volatile global south. The quarter we've just closed exemplifies both the volatility I just mentioned and, more importantly, the increasing resilience of our business. Despite softness in our largest market, we've delivered record levels of TPV and gross profit. We have rebounded from weakness in Q1 to deliver two consecutive quarters of consistent growth in metrics, as well as in adjusted EBITDA. This type of sequential growth, when compounded over many quarters, shows the extraordinary potential of dLocal. Secular trends also favor us. We have a huge and growing total addressable market underpinned by shifts towards payment digitalization, the growing importance of emerging and frontier markets, and surging demand for cross-border and instant payment methods. Industry forecasts predict the cross-border payment market can reach $65 trillion by 2030, and we see ourselves as well-positioned to be capturing a reasonable portion of that growth in this immense opportunity. Our ability to innovate and capitalize on these trends, coupled with our financial model, characterized by operational leverage and good cash conversion, will fuel long-term value creation for both our shareholders and merchants. We're just beginning to realize the compounding nature of all this, and we remain steadfast in our mission to deliver on this promise, in all the relevant geographies that our merchants need us to be. Thanks to those who have shown us continued support and confidence, and I look forward to updating you on our progress in the upcoming quarters. With that, we can now take questions.

Thank you. Our first question comes from Beatriz Abreu with Goldman Sachs. Your line is open.

My first question is on the gross profit loss in Brazil. So you showed in the presentation, I think Maria alluded in the prepared remarks, of a loss in share of wallet in one top merchant in Brazil. Could you maybe give us some more color on that? If you expect other merchants to follow suit, what specifically happened there? And my second question is regarding the decrease in G&A in the quarter, right? It fell 16% sequentially. And I think Mark mentioned that it's due to additional cost controls. But Pedro mentioned that you still intend to continue with the plan on investing in your engineering team, back office capabilities, et cetera. So just wondering if that expense line, if that level still makes sense going forward, given your investment plans, how should we think about expenses going forward? Does it increase from here and especially, going forward into next year also? Thank you.

Thank you. Just some context before I answer the specifics on Brazil. I think it's important to not forget that we run the company based on merchants and increasingly global and diversified contracts with those merchants. We don't really decide where our merchants are going to ask us for support, what markets to open, or what specific countries volumes will be up or down. We trust that, in general, merchant relationships will grow consistently, given the quality of the service we offer. When we look at Q2, one of the things that I'm most proud of is how, despite weakness in a market that is very relevant like Brazil, we were still able to deliver record gross profit. That's a testament to what we've been saying, which is that as we scale and diversify the business, the fluctuations that are inherent in emerging markets will become easier to manage through diversification. Q3 is definitely a case in point where, despite weakness across a few key markets, strength across a growing number of relevant markets allowed us to deliver record gross profit nonetheless. On Brazil specifically, Brazil has a particular regulatory environment. This specific merchant was granted a payment institution license, and the regulatory environment in Brazil does not allow a sub-acquirer or a payment institution to process through another sub-acquirer, leading them to have to go direct to acquirers. That's just how it played out. You really should not extrapolate that to other markets, and I would not extrapolate that to other merchants either. I think this is somewhat of a particular situation. More importantly, the orchestration product we launched has both an offensive and a defensive nature. The defensive nature allows us to address exactly this type of situation, where the merchant can run on their own licenses, have their own direct contract with acquirers, yet continue to use our One dLocal solution and benefit from our technology stack. We've already migrated this specific merchant over to the orchestration product. We're off to a strong start in Q4, beginning to recoup volumes and increase again our share of wallet on credit cards, and we hope to be able to continue to execute, perform, and regain as much, if not all, of that volume going forward. I'll let Mark take the one on costs.

Thanks, Pedro. In terms of cost, I think it's important to notice that we continue to invest in our future and in our people here. It's interesting to see that even though G&A came down, it was an action we took after the first quarter. It was a weaker quarter for us. We decided to take some actions, and we did reduce some costs around third parties and some other areas that we thought were prudent to do this in the shorter term. We continue to invest in our product and IT capabilities. If you look at our quarter-over-quarter, the IT and product costs have gone up by about 8%. The other costs came down by 6%, and that's part of where the G&A cost comes down as well. Looking forward, we expect that cost to slightly rise. Again, we're going to continue to invest in our infrastructure and in IT. We see those costs slightly going up, but we'll continue to be measured in terms of how we look at each one of those costs and those investments for the future.

Our next question comes from the line of Guilherme Grespan with JPMorgan. Your line is open.

Thank you for the presentation. Congrats on the results. Very strong operational performance. Just on the country base, Pedro, we noticed very strong gross profit growth, specifically in the other geographies which are not usually mentioned in your breakdown of gross profit. Other Latin and other Africa were very strong. Just to confirm, is there any new geography that you are seeing that is ramping up very fast, and what is the nature of the business? Is it more cross-border or more local to local in those geographies? Thank you.

Thanks. Great question. I think another one of the strengths in the quarter was the performance in the cross-border business. As Maria noted, it crossed $3 billion for the first time in a quarter of TPV. Part of that strength is aided by this increasing diversification in more and more markets. So the answer is many of these newer markets are indeed cross-border. They tend to be frontier markets in some cases, where the infrastructure for payments is less developed, and merchants are less inclined to incur the costs of setting up local operations and dealing with local payments. The fact that they're already integrated into our One dLocal solution makes it easy for them to add these markets. We did give specifics around some of the markets that we're excited about and where we've seen significant strength. It's a good combination of LATAM, Africa, and Asia. In addition to continued strength in Mexico, which is a core market, and Egypt, which we've been strong in for a while, we've now begun to see the emergence of a really strong franchise in South Africa. Colombia performed incredibly well this quarter, as did Peru. It's interesting to see a growing number of countries delivering strong results in TPV and gross profit. It’s exactly that type of global diversification that drives what we believe are long-term sustained growth opportunities, but also increased diversification to manage the inherent fluctuations that exist in emerging markets.

Our next question comes from the line of an analyst with Susquehanna International Group. Your line is open.

Hi, it's Jamie Friedman. I wanted to ask, is it fair to think of the fourth quarter guidance as a run rate for 2025? I realize you're not giving guidance yet for next year, but any context about how to think about the relationship between the fourth quarter and 2025 would be helpful.

Hey, Jamie. Thanks. Difficult question. First of all, let me try to parse that out a little bit. This is still a high-growth company. When we look at our pipeline, we see significant opportunities that should lead to a consistently growing book of business into 2025 and beyond. Part of that success is also driven by continued strength in the commerce category, which means that we'll be exposed to increased seasonality as e-commerce is much more backloaded, particularly in the fourth quarter. The balance between the strength of seasonality and the inherent sustained long-term growth of the book beyond the seasonal effect is one that I think is probably too soon for us to go on record on. When we revise mid-term guidance, which is an annual process for us, we'll be able to give you greater clarity on what 2025 looks like. The key message here is, we're optimistic about the pipeline. We're seeing consistent improvement quarter-on-quarter since the beginning of the year. Certainly, we feel like we're exiting the year on a much different cadence than the way we entered the year, which is, for us, very positive when we start looking into 2025.

Okay, thanks. That's clear. I wanted to ask about remittances. You had some real nice traction on the growth number in front of me, but it was like 80% due to memory. When you go into the MoneyGrams of the world or others with a remittance narrative, what does that conversation look like, and what do you feel like is your competitive advantage with your remittance offering?

Yes. At the end of the day, most remittance companies are looking for infrastructure that delivers speed of the payout, FX competitiveness, and availability of liquidity, which ties to speed. What's somewhat unique about dLocal is that with the phenomenal execution our payout team has been delivering, we combine a very strong franchise in payouts with a very strong franchise in pay-ins, which is somewhat unusual. That ability to have both the flows going southbound, the remittance flows, and the pay-in flows going northbound allows us, in markets where netting is regulatorily permissible, to have extremely fast payout capacity at very competitive FX pricing and strong liquidity, because we have money in the markets that needs to leave and money that's trying to come into the markets. On top of that, it’s about the technology stack quality that they integrate into and our service model, where we have feet on the ground and long-standing relationships with banks and wallets, with all the endpoints for remittances across these markets that not many people have built that kind of local operations and integrations. Through one integration layer, we can offer multiple markets across the global south instead of having to pursue specific partnerships for regions or countries. It’s a potent bundle, and I think that’s what's driving the success we've seen in that business over the last year.

Our next question comes from the line of Neha Agarwala with HSBC. Your line is open.

Hi. Thank you for taking my question. Just a quick one on the gross profit margin. When we look at Latin America, we are at a margin of around 38% whereas in the other geographies we're around 56%. Where should we expect this to normalize? What is a good level of gross profit margin to expect? Because we think over time you should be getting more leverage in terms of reducing costs with your partners, and that should reduce the cost of doing business. You can elaborate on that. It's a more medium-term question but would be helpful to understand.

Sure. I think you're understanding the building blocks accurately. There's inherent cost negotiation power as we grow our business and gain scale. A big part of what we do is aggregation theory in that rather than have global merchants negotiate with local processors on a case-by-case basis, we aggregate volume. We negotiate based on that aggregate volume, and even by keeping our spread, we're still able to continually lower costs. If you look at year-over-year, there have been circa 20 basis points of cost improvements in terms of processing costs, and that’s something we think we can continue to improve going forward. The cross-border, as we mentioned before, some of these newer markets tend to have higher margins because they have a combination of a higher mix of cross-border transactions and also tend to have exotic currencies that yield higher margins. The country mix and payment mix variance complicates predictions, but we're not shooting for a particular margin. We're focused on merchant-specific solutions for as many payment methods and markets as possible, aiming to optimize the gross profit dollars we're generating. It's hard to give exact guidance on where margins will land, but those are how to think through how the financial model scales into the future.

Last question, Pedro. On the cost, for this year, you mentioned investments leading to higher OpEx. How should we think about the investment going forward? Do you think you'll be done with these enhancements in the business in 2024, or should we continue to expect more investments coming through in 2025, or should you again go back to gaining operational leverage? How should we think about the OpEx going forward? Thank you so much.

Yes. If you look at the last sequential quarters, we've been delivering consistent operational leverage quarter-on-quarter. We were already at the mid-term guidance point when we look at Q3, which was somewhere in the mid-70s. To answer your specific question on investment versus leverage, we're combining both continuing to lean into the business to build the right capabilities while progressing towards our mid-term targets. After we get through this phase, we could see the business kick into a gear of operational leverage typical of a payments product. In the meantime, we'll deal with moving pieces like take rates and country mix. From a cost perspective, expect a few more quarters of disciplined investment. Ideally, that investment will not offset leverage, but we won't realize full operational leverage until a few quarters out.

Our next question comes from the line of John Coffey with Barclays. Your line is open.

I guess the first is, I was wondering, you mentioned some investments that you recently made in Nigeria, Ecuador, and Uganda. If these start to pay off, where do you see them? Is it just with more volume in TPV? Where do you see them with lower costs? I just want to try and get a better understanding of how that shows up in the income statement. And the second question, which I can just ask now, is on your payments orchestration solution. Is this something that your merchants have to opt into? Are they auto enrolled? I was wondering if you could provide a bit more information about who you're approaching with this solution. Is it new customers, existing, and how the financials might differ from the solutions they may have been using in the past? Thanks.

Yes. So the question on licenses is actually a good one. Unfortunately, licenses do not come with improved cost structures. As we all know, they come with regulatory costs. We believe they are a differentiating factor when offering solutions to global north merchants for emerging markets. From our merchants' perspective, compliance alignment and trust improve if they can flow their payments through a regulated partner rather than an unregulated one. So, where we expect to see this over the long run, greater volumes and winning more deals will result from this license portfolio giving our merchants comfort. However, I don't think it's that easy to model short term. This is more about a commercial advantage we believe we have. On orchestration, we aim to provide our merchants the broadest array of solutions while maintaining simplicity and ease of integration with the One dLocal solution. Merchants can choose to keep it simple with us, or, for those who prefer, we offer a solution allowing them to maintain their service operations and reporting while having their contracts directly with processors. We see this product as a way of pursuing incremental business and attracting new merchants who already have relationships with processors or those wanting to enter a market. Ultimately, we are solving whatever their needs are under different contractual models based on their requirements.

Our next question comes from the line of Cassie Chan with Bank of America. Your line is open.

So I guess just wanted to go back to the fourth quarter. I know you guys mentioned typical seasonality given the ramp up of commerce and the holiday shopping. Obviously, the full-year guide was reiterated, which kind of implies stable quarter-over-quarter growth, both on GPN and margins, but mainly focusing on the top line for the fourth quarter. I guess like, is there anything that you guys have seen in the data quarter-to-date as a reason to believe why the Q4 seasonality that you typically expect wouldn't materialize, or are you just trying to be a little bit more conservative given the volatility in emerging markets? And then I have a follow-up. Thank you.

Hey Cassie, thanks for that. The answer is we haven't had a stellar management of guidance so far this year. The fourth quarter is very particular because the real quarter plays out over the next four weeks, from mid-November to mid-December. It's a quarter where we need to exercise caution because we don't know how the full quarter will play out until the next four weeks are complete. We see TPV trends coming in solid. We're seeing a rebound in Brazil, as I mentioned before. But we need to be clear that despite the strong start, it's the next four weeks where it all plays out.

Okay, understood. I guess just wanted to ask about the top 10 clients, which was up nicely, about 16%, and then non-top 10 clients at about 8%, I think in terms of revenue growth. How should we think about ongoing revenue concentration? It's obviously still above 60% of your total revenues and diversification as well, both within top and non-top 10 clients going forward. Thank you.

Yes. As you've seen from my remarks, I'm encouraged and optimistic about our diversification from a regional and market perspective. We're seeing merchants who try us in a few markets increasingly trust how we're performing for them and are asking for a growing number of emerging and frontier markets. That’s evident in the numbers, helping diversify our business with a growing number of markets that perform well. From a merchant perspective, our mid-term vision is also to reduce reliance on the top 10 and top 25 merchants, but that might be more of a mid-term play. The reality is that the merchants focused on these markets tend to be larger global players optimizing across our offerings. The Tier 2 or Tier 3 merchants today are just beginning to enter their global go-to-market strategy in emerging markets. I believe reliance on our top clients will remain, but there will be slight improvements over the next few quarters. I do not anticipate this deconcentration occurring quickly.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back to dLocal for closing remarks.

Thanks, everyone, for your interest. I think things continue to progressively get more encouraging. As we've said, this is our second consecutive quarter of consistent improvement on a sequential basis. If we continue to deliver like this, the power of compounding sequential growth in the high single-digit, low double-digit is phenomenal when you look at that over a multi-year period. That's what the entire team at dLocal is laser-focused on executing and delivering on. I look forward to updating you on how the fourth quarter played out in a few months. Thank you, and until then.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.